Monday, November 30, 2009

"One retired Fresno city fire captain receives an annual pension of more than $190,000 -- more than twice a typical captain's salary. Another receives nearly $180,000 a year.

Altogether, 72 of 865 former police or fire employees had annual pensions above $100,000 in 2009. Only five of 1,402 nonpublic-safety retirees reached that level.

The pension numbers, provided by the city in response to a state Public Records Act request by The Bee, highlight a sensitive problem: Politically powerful public safety employees received more than half of pension payouts this year. This is only the city, the county is in worse shape. As I reported earlier, Fresno County is going to increase pension payments by 25%.

The pension tsunami is accelerating, and counties in California municipalities must capitulate and default to correct the problem.

"If Bush and the Republican Congress would make spending reduction the goal, even with the initiative to make the tax cuts permanent, the deficit, which now stands just north of $400 billion, would be easily cut in half four years from now, which is what Bush promised during the campaign."

Steve Moore is an ignorant con man. Bush cut progressive tax rates for the same reason the Reagan did, so they could run up the federal budget! Republicans are communist, any doubt after they run up almost 10 trillion dollars in debt between Reagan and lil Bush?

So now Moore, writes this book that blames Obama for running up the budget deficit. Why does that book sell for only $7? Because no one wants to buy a book from a Communist dupe.

Dubai's government says it will default on the debt it owes vie Dubai World.

Very interesting. The rich oil sovereigns will stiff western bankers, but western governments make good on the debt carried by the Chinese capitalists. The story here is that our government was fairly more honest than Arab oil sheiks. It will be a few years before Western banks trust Arab sheiks again. But, default is generally a good thing to do, though the best hing is to avoid borrowing so much.

My hordes of readers know that I come from a signal processing background, adaptive linear filters and minimum variance equilibrium. So, coming to economics I had to ultimately see the real Yield Curve as a measured output of the system. The Yield Curve is really a partial Fourier Transform with the negative terms hidden.

What does this mean for the investor? Well, the first point is that the investor is watching two things, the planned growth of an investment, the upper left quardant of Fourier and the risk of reversal, the negative right side terms. The investor is publicly told about proposed positive growth, and analysts fill in the potential for reversal in the investment. But we only publish measured positive growth.

The yield curve, in frequency space is a Normal distribution of frequencies, a bell shape. The result derives from the minimum phase condit6ion which says that at equilibrium inventory levels are minimum. The investor sees the published right side of this distribution and has to individually estimate the negative terms on his/her own. That is the key to investing, and good investors do it automatically with out realizing they are performing a Fourier Transform.

Looking at Yield from frequency space rather than term space is instructive. The shortest possible term is overnight, and that has a frequency of 365. The update frequency of the central bank is 4, equivalent to 3 months. The signal between 365 and 4 is generally noise. So in frequency space the string is truly long.

Now Kling says that we are mostly in a liquidity trap, Krugman says a liquidity trap is unusual. The realdefinition is that the economy is never in a liquidity trap, it always measures the Yield Curve, either the bankers yield curve or the shoelace yield curve, it is always measured.

So what to they mean by liquidity trap? They mean that the point at which the shortest term on the bankers Yield meets the noise floor on the X axis. That point represents the bandwidth of the Central Banker, and that bandwidth is generally about three months, allowing the central bank to track economic movements on scales longer than six months (bandwidth is 1/2 the sample rate). That point, where the noise floor and the shortest term meet always exists if the economy exists. We are never in a liquidity trap, there is always a bandwidth point at which the central bank is effective.

What does this mean for the Taylor rule? The Taylor rule is likely the best norm for meeting Congressional dictate, but is will be cyclic. The only equilibriating response is for the Fed to select the sample rate it needs by noting where the short term meets the noise floor. Then in frequency space, make that term interest rate fill in the nominal Bell Shape we need from the yield curve, and ignore Congress in the process.

Sunday, November 29, 2009

Here, he lays out the internal conflicts with clarity. After reading his essay I come away feeling that China is the next deflation we should expect. They suppress their own rural consumption in favor of the American market. A long history of the PRC harming the rural population. Unfortunately, China may have to start its deflation with a major uprising. (found this link from some comments at Thoma's blog)

First, CATO's Dan Mitchell once again points out, correctly, that the federal budget mess is entirely due to Republican big government spending.

Then we have new stories about Grandad Bush, the Nazi traitor who was almost arrested for treason. The new twist is grand-dad Bush may have actually attempted a military coup while working for the nazis.

Then, or course, there is the long standing business relationship between the Carlyle Defense group, Daddy Bush, and one of the key Al Queda Bin Laden brothers.

Just to remind ourselves that Republicans are both Communist and Traitorous.

Saturday, November 28, 2009

Bloomberg reporter David Evans won the London-based Foreign Press Association’s 2009 Media Award for best financial story this week, for “The Hidden Pension Fiasco.”

An interesting story about how public pension fund managers have been making up current funding shortfalls with bond issuance. They cover the shortfall, but very quickly rack up continuing debt service for the taxpayer. This policy creates cliff diving phenomena. When future growth is overestimated, the realization comes suddenly and the deflation of government operations swift. California is in this process with debt service rising, consideration of a two tier employment structure, and each budget failing to balance after a few months.

Thursday, November 26, 2009

Arnold Kling points me to Bruce Greenwald on a diagnosis of the Great Depression:

Since about 1870, productivity growth [in agriculture] had been 4% to 5% and demand growth had been 1% to 2%. Agricultural prices had been up before and during the first World War, and then they were down. But the inexorable trend had been down, with all this growth in productivity and limitations on demand, and sooner or later prices were going to collapse. Approximately 35% of the US population was either in farming or in farm towns or were supporting a farming enterprise, and they were going to be marooned.

My problem here is how do productivity increases create poverty? Small farmers were bought out, to create economies of scale, but the over all sector would have been wealthier. Rationally invested small farmers would get better estate prices for the aggregation of the sector. Many of them would have been re-employed in related agricultural transportation and mechanics. Others should have left the farm with some net cash.

I was in Bakersfield when the migrants were raising their kids. I saw that work picked right up for the migrants in highway and housing construction, transportation, auto servicing, retail, and small manufacturing in the post war period. Other than war, the post Depression period was a period of job growth and opportunity.

The problem in the Great Depression was the mismatch between communication technology and transportation technology. Somewhere between 1927 and 1928, mass market commercial broadcasting begin and the utility of the car as a shopping device skyrocketed, but the roads could not meet the task. Downtowns literally stopped moving when the broadcasters began advertising.

Tuesday, November 24, 2009

Is my knee jerk reaction to the problem of robots going out of control and killing people.

In other words, should robot manufactoring in the USA get some partial immunity from robot accidents? Kenneth Anderson gets into it at the Volokh Conspiracy. He references a CATO scholar who thinks robot immunity will advance the technology base in the USA. (HT Instapundit)

I think not. Robot need to stand on their own with no change in TORT. As robots and humans introduce themselves to each other, the relationship must start with equality so that the economy can appropriately adjust where and when robots yield the most good. Besides, I am generally in favor of Tort over Regulation.

Sunday, November 22, 2009

Says Ezra Klein. The argument is that government subsidies for the public option, or private option in health care are not entitlements.

What does that nonsense mean, and why is he writing for a national journal? Ezra, go read the constitution, there is no such thing as an entitlement, it is a political creation and subject to the same cost overruns as any other political football.

Get real, and quit writing nonsense in public. This is the same semantic nonsense Thoma and Krugman use to get their ideology past economic theory. If we wonder why we are in this mess, look no further than so called economic scientists twisting their theory to get an ideology they like.

Thursday, November 19, 2009

"On page 432 of the Reid bill, there is a section increasing federal Medicaid subsidies for “certain states recovering from a major disaster.”

The section spends two pages defining which “states” would qualify, saying, among other things, that it would be states that “during the preceding 7 fiscal years” have been declared a “major disaster area.”

I [Jonathan Karl] am told the section applies to exactly one state: Louisiana, the home of moderate Democrat Mary Landrieu, who has been playing hard to get on the health care bill."

"I think it's important to have a public option in the bill in some form, even an unsatisfactory one, because it will be much easier to expand the option once it's in place than it would be to pass new legislation in the future that creates a public option."

US Department of Health and Human Resources making healthcare decisions:

Just three recent stories I picked up, and I expect these stories to repeat themselves for 20 years. Congress selling health care for votes, liberal economists claiming inefficiency as superior, and doctor monopolies manipulating the cost control system. Welcome to the horrid mess of Congress managing the medical industry.

From the CPI numbers above for the months of 2009, we can see that the deflationary retail pattern has abated. So, for whatever happened in this phase of the Recalculation, the retail sector has made its adjustment. With the retail sector stabilized, we see that oil is just under $80/barrel. When we are constrained by oil, and the retail sector has zero inflation, then that price of oil is an estimate of the medium equilibrium price or oil, representing the oil price we have to pay to pump goods through the retail sector with stability. So we have an economic data point built using the distance between wholesale oil prices and retail consumer price volatility.

Poil = Fcpi I rely in the price of the constrained good as a function of retail price volatility. This statistic should be good when the economy is constrained by a single essential input, like energy.

The economy will treat this condition as the new normal. If oil prices rise, the retail sector will threaten a round of deflation, pushing oil prices back down. The new normal changes due to increased oil efficiency around regional economies. Economies that gain in relative oil efficiency will see relative gains in currency. Developing regions have the most to gain coming from the least efficient. The dollar will retain reserve status to the extant that relative USA oil efficiency gains outpace the developing world.

Other economic issues:I think the pension and health care costs are painful, but orthogonal to the energy issue. Cause goes from energy to pension, to the extent that we fail to increase energy efficiency, pensions will continue to devalue while local government increasingly goes bankrupt. Federal involvement in the health insurance industry will be very disruptive to the medical industry, but medical goods are not a direct constraint in the economy.

So my conclusion is straight forward. Future economic conditions depend on the specific application of technology to increase energy efficiency.

Thursday, November 12, 2009

My claim here is that TIPs was reacting to the strong deflationary trend in the collapse, especially commodities. We get a square wave because events happen faster than the Fed can react. So that square wave measures the reaction time of the Socialist Monetary Bank in America.

(HT from Money Illusion, who borrowed the chart)

Back to the title. The mother asked the rabbi how much he charges for circumcision. The rabbi replied that he only takes TIPs.

Tuesday, November 10, 2009

Output, as a function of the constrained resource is highly concave downward. That means the economy gets the highest payoff by applying technology to the constrained resource, money flows to the bottlenecks.

If we use a multi-stage flow model then econometrics would become statistical queuing problem. A linear multi-stage queue would be a collapsed version of a spanning tree, in the more generalized case. The economy, as a spanning tree under a severely constrained input, will have a backbone determined mainly by the efficient delivery of the constrained resource. Technology allows us to build appropriate sub branches around the backbone.

So, if we held to a structural theory (rather than hydraulic) down to the transaction level, then each transaction is a partial rebalance of the total spanning tree, an additional branch on one side, the destruction of a branch on another side. Asymmetry modifies the branch decay/growth process, branch decay occurs faster. Constant uncertainty says that the tree is further restricted in growth to have a strong self similarity, as fractalists point out.

The last point is the more difficult. If we take the banker's yield curve, interpreted as the simple linear multi-stage stochastic flow, then the curve will be a weighted composite of inventory flows of all goods, including banker's goods. So if you take the banker's curve, grap it in the middle with your finger nails, and sort of spread it out into its spanning tree form, the sub branches that result look like the main backbone, but to a lesser degree as the tree unfolds. Each sub branch will be coherent with the finite boundaries of the backbone because it follows the aggregate division of available certainty across and the optimum shaped term structure.

The premise of constant uncertainty and our level of collective action are highly related biologically and economically; a bridge that sorts of connects economics and biology. There is a level of observed similar activity among our neighbors that triggers in us level of certainty that action is useful. When we see regular numbers of workers with lunch pails we are excessively certain that it is a work day, the certainty synapse fires as Kling might say.

Reading the Models and Agentpost.Chevelle does a great job of defining the term 'carry' in terms of carry trade, then goes on to make the case that the recent run up in equities is not yet over-leveraged.

Understanding Society on motives for collective action.Daniel Little talks about what I call the bias toward collective action. Under what conditions will individuals cede their individuality to organized activity. Quantum Mechanical theories of economics rely on finite dimensionality, the sometimes inability of the economy to find smooth paths ahead. (HT Mark Thoma).

Three-Toed Sloth on Shadow Price of Power.This article talks about a test to determine if a samle came from one of two different collections., say signal from noise. crshalizi derives the separation ration of Signal to Noise (SNR). When a measurements exceeds the ratio, select signal; otherwise select noise. The post then argues that the economy searches for the optimum ration in pricing a good. That is the economy seeks to manage production such that variation in output has enough power to yield the optimum Signal in the market Noise. (HT Brad DeLong)

Is the Hard Asset Index a leading indicator of urban price inflation?"The HAI monetary inflation index is derived by calculating the difference between gold's appreciation rate in dollars versus its euro-denominated gains."The Urban CPI, which remains negative seems to track the HAI, and that is trending up. Hence, accordingly, one would predict the urban CPI numbers coming out in Nov 15 will show -.5% to 0% change.

Compare the HAI to this post of mine on Gold and Oil. Gold acts like oil until the crash when gold acts like a monetary reserve. So, across that span, gold seems to track the constraining resource. Interesting, and at least allows us to use the gold based HAI over the break.

Friday, November 6, 2009

Thursday, November 5, 2009

Pension Watch has been keeping us up to date on the madness of a water district in southern California asking for a 25% forward and retroactive pension increase. The story shows how the insiders fake a negotiation between management and labor, when they are both in cahoots to defraud the taxpayer.

Tuesday, November 3, 2009

After reading Mish my take away was that in financial stability Gold becomes the industrial market and in times of financial distress Gold becomes money. So we are really watching two markets here, the role of Gold in money remains dormant when fiat systems seem stable.

Looking at Gold vs Oil.

Comparing the oil and gold charts above, notice that they track until mid-2008, then they decorrelate. What happened is that the financial distress causes currency uncertainty leading to the emergence of a dormant 'gold is money' market. After mid-2008, told switches entirely from its industrial use to its monetary use. Two completely different markets.

The bull market in Gold comes when it is needed to store value, temporarily, like the Chinese do to offset volatile currency. So during periods of financilal distress, industrial users of Gold delay their work as Gold is diverted to the money market. As recovery begins, industrial users of Gold get the stuff cheap and their business booms.

"One way to assess how Americans feel about the different tax and benefit packages the states offer is by examining internal U.S. migration patterns. Between April 1, 2000, and June 30, 2007, an average of 3,247 more people moved out of California than into it every week, according to the Census Bureau. "

"According to a report issued earlier this year by the consulting firm McKinsey & Co., Texas students "are, on average, one to two years of learning ahead of California students of the same age," even though per-pupil expenditures on public school students are 12% higher in California."

Sunday, November 1, 2009

"If Obama and the Democrats lose one or both houses of Congress in the midterms, it will be because the president learned only the most superficial lesson of the Clinton years. Health-care reform is critically important. But when one out of six Americans is unemployed or underemployed, getting the nation back to work is more so."

Like a bad cop/good cop. Threaten us with a trillion dollar health care plan then settle for half trillion second stimulus.